This is a CU Colorado Springs student blog for the following courses: Intermediate Microeconomics and Austrian Economics.

January 16, 2008

CEOs

Economists (and especially their critics) will often say that life is sometimes seen as being all about money, dollars and cents. So it was interesting to see how Harford says our individual choices have more to do with our identities as human beings rather than our innate desire to possess material goods.

Harford says, “The central concept of economics is not money but rather incentives…not everything can be bought with money…money cannot buy love, respect or peace of mind” (2-3).

Therefore, it’s pretty clear that what we want (and one reason we sometimes use money to accomplish this end) is to simply be accepted by others.

And as a secondary objective, to feel that we are in control (29).

In the example where CEOs are late to meetings, people will naturally assume that the CEO was late because he/she was tied up with something more important prior to attending the meeting and the CEO’s mentality might be “these minions who work for me are lucky to breathe the same air as me even if I was indeed late.”

Whatever the actual situation may be, those who are late, if they are in positions of power or influence, will be able to convey the scarcity of their time and therefore give off the image that they are in control by walking into meetings late.

In this case, the CEO is signaling to others.

It was interesting how Harford pointed out that the higher you are up on the corporate ladder, the more time you devote to meetings and the less time you actually spend working on the technical aspects of the job.

As a CEO, you wouldn’t be doing as much number-crunching as much as you would be focused on developing a vision for the future of your company.

Harford points out that attention (because it is so scarce) is perhaps the biggest commodity that a wealthy society craves more than material goods (47-8).

The CEO wants attention and is often found in the spotlight because he/she grabs it.

Furthermore, because the CEO is already in a position that is noticed (84), the CEO does not have to put in too much of a signal in to reap the benefits of it.

Just as a politician has no shortage of romantic propositions, it’s the same way with CEOs: appear powerful, appear valuable, appear coveted by others, and then you will get essentially everything.

CEOs know how to master signaling and know that if others perceive their time and important, then the CEO will be in higher demand.

And with this higher demand comes acceptance from others, which is precisely what we want according to Harford.